Study says performance is key to firing managers – Fund Forum
Performance may not result in the hiring of an asset manager, but it certainly is the main reason for firing them, according to a study of Europe’s largest fund buyers by KPMG and Caceis.
Performance runs second behind transparency for selection, the study suggests.
In enlisting a manager, institutional investors look beyond just performance. Even though making money may be the daily goal foremost in the mind of many fund managers, it ranks behind transparency for institutional searches.
Once the mandate is given, performance does not even get a look-in among the three most important criteria in ongoing monitoring by Europe’s institutional community. The three primary concerns of institutions then are operational strength – IT, people and processes – independent verification of procedures and the quality of advice.
But the study, conducted from February to April and encompassing groups holding €4.5trn of European institutional money, found performance was “by far” the main reason managers were axed, cited by about 25% of allocators. This was followed by fees and charges (about 12%) and poor quality of reporting.
Francois Marion, Caecis CEO, told delegates at Fund Forum in Monaco yesterday that performance was one of four metrics – with fees, reporting quality and risk transparency the others – for which institutional investors were not satisfied with their managers. Allocators were satisfied with managers’ expertise, the quality of advice from them, operational strength and independent verification of procedures.
Unfortunately for asset managers, four of the five metrics where allocators showed dissatisfaction were also the most important to fund buyers.
On performance, Marion said asset managers had to investigate “how performance is priced”. On fees and charges, the issue was how to calculate them vis a vis performance, and the period of calculation. Marion said “premium over a defined benchmark” made sense in calibrating performance fees, while “multiple years” was an appropriate horizon for many fee calculations.
Of regularity of reporting, Marion said no more than five days’ gap for monthly reporting, or 10 days for quarterly, was appropriate, “and the investor must be provided with raw data, not just nice, cosmetic reporting with which the investor cannot do anything”. He added poor reporting could lead to poor understanding of products, and a belief they were therefore higher risk.
He added reporting often became “descriptive” in bull markets, when fewer investors cared about return levels, and this could conceal the fact the reporting was flawed in important ways. In bearish markets “predictive” reporting based on forecasts was more prevalent. “Now we are going to ‘sliding reporting’ based on assumptions and bets made by management strategies, and you compare months after the event what you bet, what actually happened, and what is the performance based on the difference.”